Group Cash & Asia Jackson UK Life M&G Group Performance Dividend Disciplined capital allocation Asia Health and Protection APE 1 , £m Asia insurance margin 2,3 , £m H&P % 30% of Asia APE 679 640 600 589 501 483 410 392 321 262 251 233 8% 170 145 114 69 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 1 Comparatives have been stated on an actual exchange rate basis. Excludes Japan and Taiwan agency. For FY06 and FY07, excludes Taiwan. 2 Adjusted for new and amended accounting standards and excludes Japan Life. Figure for 2006 and 2007 data not collected, values are indicative estimates 3 Comparatives have been stated on an actual exchange rate basis. Insurance margin includes new business and in-force. 11 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Group Performance Dividend Disciplined capital allocation Jackson fee income 1 , £m Jackson VA sales, $bn 1,172 20.9 19.7 17.5 875 14.7 680 10.0 9.1 506 7.0 6.5 324 292 266 177 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 1 Comparatives have been stated on an actual exchange rate basis 12 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Group Performance Dividend Disciplined capital allocation UK PruFund FUM 1 , £bn 10.2 9.1 7.5 5.4 4.1 2.5 0.9 0.3 0.1 2006 2007 2008 2009 2010 2011 2012 2013 HY 2014 1 Fund data uses the unsmoothed fund values 13 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Group Performance Dividend High quality earnings Sources of IFRS operating income 1 , £m CAGR +13% 2,267 5% 2,067 7% 5% 7% 1,752 +8% 24% 1,594 7% 26% 9% 8% 1,385 11% 9% 1,097 31% 12% 988 34% 33% 14% 893 32% 829 14% 14% 33% 15% 17% 21% +28% 64% 29% 23% 62% 33% 22% 26% 29% 23% 53% 35% 48% 37% 19% 46% 30% 30% 23% 39% 24% 22% 36% 23% 19% 15% 27% 24% 20% 13% 9% 8% HY 2006 HY 2007 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 Insurance margin Fee income Spread income With-profits Expected return on shareholder assets 1 Adjusted for new and amended accounting standards and excludes Japan Life. HY06 and HY 07 data not collected, values are indicative estimates. 14 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Group Performance Dividend Relative performance Growth in dividend per share 1 2006 vs 2013 96% Prudential UK Life Peers 23% average FTSE 100 -23% Financial Peers average 1 Based on FTSE 100 as of 31 Dec 2013. Rebase of 100 set in 2006. Source FactSet and Prudential estimates. 15 2014 HALF YEAR RESULTS
Agenda Group Performance Asia Jackson UK Life M&G Cash and Dividend 16 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Track record of successful execution New business profit 1,3 , £m IFRS operating profit 2,3 , £m 2.5x 2.4x CAGR CAGR +20% +19% 525 494 440 429 377 361 313 306 262 246 220 199 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 Net cash remittances, £m 10.3x CAGR 216 +59% 190 126 105 67 21 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 x.x HY 2014 multiple over HY 2009 1 On a post tax basis and excludes Japan Life and Taiwan agency. 2 Adjusted for new and amended accounting standards and excludes Japan Life. 3 Comparatives have been stated on a constant exchange rate basis. 17 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Single premium sales are sentiment led and volatile Asia – Single Premium APE, £m MSCI Asia ex Japan 1 214 157 155 146 122 110 91 79 77 68 63 56 46 45 27 23 11 6 9 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Single Premium APE 1 Source: Datastream. 18 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Regular premium focus drives resilient growth for PCA Asia – Regular and Single Premium APE, £m 1,911 MSCI Asia ex Japan 1 1,740 1,514 1,391 1,131 1,052 889 723 494 360 340 281 214 206 151 155 122 110 146 157 23 120 11 77 106 27 63 46 45 56 68 91 79 103 91 6 9 79 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Single Premium APE Regular Premium 1 Source: Datastream. 19 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Performance Regular premium APE 1 , £m Single premium APE 1 , £m 900 15% 785 97 -2% 96 HY 2013 HY 2014 HY 2013 HY 2014 1 Comparatives have been stated on a constant exchange rate basis. 20 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Decisive policy actions Indonesia H2 2013 1 2014 YTD 1 Change in -25% +3% Rupiah/GBP 2 Central bank -43bp 3 Interest rates Interest rate rises Equity markets 4 -11% +19% 1 Movement in rates for H2 2013 from June end 2013 to December end 2013. Movement for 2014 YTD from December end 2013 to July end 2014. 2 Change in closing spot exchange rates. 3 Change in Indonesia 10yr Government Bond Yields. 4 Change in the value of JCI stock index (Jakarta Stock Exchange Composite Index). 21 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Structural growth Emerging and developing Asia, Average GDP growth % 1.9 8.5 3x 6.6 Vs Advanced economies IMF Cyclical Potential Forecast 1 component 2 growth 3 1 Source: IMF World Economic Outlook – April 2014. Average GDP growth 2014-2019. 2 Source: IMF Emerging Markets in Transition: Growth Prospects and Challenges – Cubeddu et al. Composition of recent growth slowdown 2012-18 versus 2003-11. 3 Source: Prudential estimates. Potential growth is a product of IMF forecast and cyclical component. 22 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Bancassurance Hong Kong, • Region’s most productive partnership Extended Singapore, Thailand exclusivity • Renewal provides long term clarity Malaysia, Taiwan Indonesia Expanded • Strengthens existing relationships Philippines to • Well positioned in high growth markets exclusive Vietnam Expanded China to • Strengthens collaboration Korea Preferred Brand India • Partnership launched in June New Cambodia, Laos, Opportunities • Evaluating potential for collaboration under review Bangladesh 23 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Country update Hong Kong 1 Singapore 1 • 30% APE and 32% NBP growth in HY 2014 • Market leader for Shield products • Most productive agency sales force • Strong Agency performance • Successful launch of new critical illness • HNW NBP growth of 73% products (H&P APE +53%) Indonesia 1 • IFRS operating profits up 32% to £139m • Outperforming the market • Agency recruitment remains on track 1 Comparatives have been stated on a constant exchange rate basis. 24 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Country update Philippines 1 Thailand 1 • Strong performance from Thanachart • Shift to regular premium products (APE +21%) • Doubled market share in 1 year • IFRS operating profits up 38% • IFRS operating profits up 2.5 times to £25m • Ranked second with market share 2 of 14% 1 Comparatives have been stated on a constant exchange rate basis. 2 Market statistics in the Philippines are based on industry sharing data 25 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Eastspring Funds under management 1 , £bn 22% 67 55 HY 2013 HY 2014 1 Comparatives have been stated on a constant exchange rate basis. 26 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Strong delivery IFRS operating profit 1,2 , £m Free Surplus Generation 1,2 , £m 19% 525 19% 302 440 253 HY 2013 HY 2014 HY 2013 HY 2014 1 Adjusted for new and amended accounting standards and excludes Japan Life. 2 Comparatives have been stated on a constant exchange rate basis. 27 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Asia Performance Dividend Summary • Structural fundamentals intact • Scale position in sweet spot markets • Strong management team • Confident on delivery 28 2014 HALF YEAR RESULTS
Agenda Group Performance Asia Jackson UK Life M&G Cash and Dividend 29 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Jackson Performance Dividend Proactive diversification Jackson VA sales mix, $bn 20.9 19.7 2.4 17.5 31% 4.0 14.7 10.0 14.5 6.5 2008 2009 2010 2011 2012 2013 VA With Living Benefit Elite Access VA Without Living Benefit 30 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Jackson Performance Dividend Disciplined growth Living benefit VA sales by quarter, $bn 10.0 9.0 8.0 7.0 6.0 5.0 5.0 Jackson 4.0 4.0 Quarterly average 3.0 3.0 2.0 1.0 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 2014 31 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Jackson Performance Dividend Healthy in-force Separate account value by S&P 500 level at policy issue <1% in the money at 30 June 2014 $129bn as of 30 June 2014 1 No Optional 9% Benefit Guarantee 4% 29% 6% GMDB 7% Below 62% S&P 1400 12% 14% 19% ( ≤ 1200) (1200-1300) (1300-1400) (1400-1500) (1500-1600) (1600-1700) (1700-1800) >1800 1 Includes VAs allocated to General Account. 32 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Jackson Performance Dividend Successful execution Cumulative cash remittances, $m 2008 - HY 2014 $2,448m S&P 500 580 530 470 400 280 125 63 1 2008 2009 2010 2011 2012 2013 2014 HY RBC Ratio 438% 417% 483% 429% 423% 450% 1 Net remittances from Jackson include $197m in 2011 representing release of excess surplus to the Group. 33 2014 HALF YEAR RESULTS
Agenda Group Performance Asia Jackson UK Life M&G Cash and Dividend 34 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G UK Performance Dividend Delivering through regulatory change Life IFRS operating profit, £m 374 New business 25 341 336 332 retail annuities 307 303 54 349 336 332 307 303 287 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 35 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G UK Performance Dividend Leveraging strengths UK Bulk annuity market 1 Prudential HY 2014 Bulk annuities, £m Scheme size <£100m 1,036 >£100m and <£250m 182 80 >£250m and <£500m 200 1,364 69 >£500m Single Premium NBP Total market size: c£1.8tn 1 KPMG high-level analysis based on Purple Book 2013 36 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G UK Performance Dividend The UK business continues to evolve Market challenges Strategy UK’s ageing demographic & wealth Focus on changing customer needs concentration in the over 50s segment Risk transfer from Government and Broaden Retirement Income corporates to individuals product range Drive innovation in Savings and Reduction in access to advice for the Investment backed by With-Profits mass market strength On-going regulatory scrutiny Sustainable Bulk sales 37 2014 HALF YEAR RESULTS
Agenda Group Performance Asia Jackson UK Life M&G Cash and Dividend 38 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G M&G Performance Dividend Successful diversification International FUM, £bn 27.9 32% 21.2 HY 2013 HY 2014 39 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G M&G Performance Dividend Successful diversification Total FUM, £bn 254 244 228 201 198 174 1.9x External Internal 2009 2010 2011 2012 2013 HY 2014 External % 40% 45% 46% 49% 52% 52% 40 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G M&G Performance Dividend Strong track record M&G IFRS operating profit 1 , £m 3.0x 227 204 175 172 122 75 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 1 Excludes PruCap. 41 2014 HALF YEAR RESULTS
Agenda Group Performance Asia Jackson UK Life M&G Cash and Dividend 42 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Delivering cash Performance Dividend Free surplus generation Free surplus and dividend, £m 2.4x Reinvestment Reinvestment rate 24% rate 26% Reinvestment Reinvestment rate 26% rate 21% 382 Reinvestment 396 rate 27% 297 364 337 Reinvestment rate 34% Reinvestment rate 40% 1,601 1,548 319 208 1,388 1,395 339 1,258 197 1,219 1,152 1,091 201 189 1,031 928 921 842 144 175 609 610 532 503 104 439 440 318 226 169 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 Surplus generation 1 Investment in new business 1 Central outgoings 2 Net free surplus Dividend net of scrip 1 Comparatives adjusted for new and amended accounting standard and excludes Japan Life. 2 Central outgoings includes RHO costs. 43 2014 HALF YEAR RESULTS
Group Cash & Asia Jackson UK Life M&G Delivering cash Performance Dividend Dividend Dividend, pence per share 33.57 +15.0% 29.19 +15.9% 25.19 +5.6% 23.85 +20.2% 23.84 19.85 +5.0% 18.90 18.00 +5.0% 20.79 17.14 +5.0% Total dividend 16.32 +5.0% 17.24 17.24 13.56 12.91 12.30 11.72 Final dividend 11.02 +15.0% 11.19 9.73 8.40 7.95 Interim dividend 6.61 6.29 5.70 5.99 5.42 5.30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 44 2014 HALF YEAR RESULTS
Prudential plc 2014 half year results Agenda Tidjane Thiam Business Review - UK Life - Jackie Hunt Financial Review Nic Nicandrou Outlook Tidjane Thiam 45 2014 HALF YEAR RESULTS
Key financial highlights IFRS Free surplus Other operating Overview generation items HY14 continued strong performance profit HY14 vs HY13 £m HY14 1 HY13 1 AER 3 CER 4 1,415 7% 17% IFRS operating profit 1,521 Free surplus generation 1,219 1,152 6% 13% New business profit 2 1,015 913 11% 24% EEV operating profit 2 1,943 1,821 7% 18% 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the half year 2013 results are shown on a comparable basis. 3 Actual exchange rates. 4 Constant exchange rates. 46 2014 HALF YEAR RESULTS
Currency mix IFRS Free surplus Other operating Overview generation items Currency translation effect profit IFRS operating profit 1 Average FX rate movement HY14 vs HY13 , % by currency , % HY14 Other Asia UK sterling 17 USD (8)% 21 Asia - US 17 dollar linked HKD (7)% 45 US dollar SGD (9)% Underlying free surplus generation 1 by currency , % HY14 Other Asia MYR (13)% 14 Asia - US dollar linked 38 11 UK sterling IDR (23)% 37 (30)% (20)% (10)% 0% US dollar 1 IFRS results and underlying free surplus generation exclude Japan Life classified as held for sale. 47 2014 HALF YEAR RESULTS
Currency mix IFRS Free surplus Other operating Overview generation items Currency translation effect profit IFRS operating profit 1 , £m New business profit 1,2 , £m HY13 IFRS operating profit 3 HY13 new business profit 3 913 1,415 2,954 (3)% (23) (3)% (47) Impact of translating result on Impact of translating result on 2014 half year average rates 2014 half year average rates (8)% (73) (5)% (72) 817 HY13 IFRS operating profit 4 1,296 HY13 new business profit 4 Underlying free surplus generation 1 , £m EEV operating profit 1,2 , £m HY13 free surplus generation 3 1,152 HY13 EEV operating profit 3 1,821 2,462 (3)% (3)% (55) (30) Impact of translating result on Impact of translating result on 2014 half year average rates 2014 half year average rates (3)% (39) (6)% (115) 1,651 HY13 free surplus generation 4 HY13 EEV operating profit 4 1,083 Impact on Group result from US contribution Impact on Group result from Asia contribution 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the half year 2013 results are shown on a comparable basis. 3 HY13 result translated on HY13 average exchange rates. 4 HY13 result translated on HY14 average exchange rates. 48 2014 HALF YEAR RESULTS
Key financial highlights IFRS Free surplus Other operating Overview generation items Broad based growth profit HY14 vs HY13 1 , constant exchange rates Group Asia US UK M&G 3 IFRS operating profit 17% 19% 20% 8% 11% 13% 19% 23% (8)% 14% Free surplus generation New business profit 2 24% 15% 31% 45% n/a EEV operating profit 2 18% 17% 15% 26% 14% 1 IFRS and EEV results and free surplus generation exclude Japan Life classified as held for sale. 2 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the half year 2013 results are shown on a comparable basis. 3 Includes PruCap. 49 2014 HALF YEAR RESULTS
IFRS – Group IFRS Free surplus Other Overview operating generation items Growing profit and improving quality profit Life IFRS 1 operating profit up 20% , £m (CER) IFRS operating profit 1 , £m (CER) HY13 1,521 1,285 CER 1,296 149 Fee income Insurance 188 income 17% Spread 58 income 974 Other 21 income Expenses (158) net of DAC HY13 HY14 CER 1,543 HY14 Operating 45.2p 38.7p EPS 1 IFRS results exclude Japan Life classified as held for sale. 50 2014 HALF YEAR RESULTS
IFRS – Asia IFRS Free surplus Other Overview operating generation items Continued strong growth in Asia life profits profit Asia life 1 , shareholder-backed policyholder liabilities (CER 2 ) In-force premium 3 Shareholder-backed policyholder liabilities, £bn flows, £m IFRS operating profit 1 , by business unit 1,192 23.4 1,016 20.2 £m, CER HY14 HY13 Change 16% 17% Asia 525 440 19% 30 Jun HY14 30 Jun HY13 2014 2013 Life 483 406 19% Asia life 1 , sources of earnings £m (CER 2 ) Eastspring 42 34 24% x% HY14 vs HY13 CER +13% +8% +21 (52) 483 US 681 569 20% +55 +20% (8)% 356 8% +53 UK 386 406 M&G 249 225 11% HY13 Insurance Margin on Other Expenses HY14 margin revenues income / DAC adj. CER 1 IFRS results, shareholder-backed policyholder liabilities, in-force premium flows and sources of earnings exclude Japan Life classified as held for sale. 2 HY13 restated on constant exchange rate basis, reducing Asia life IFRS operating profit by £68 million, shareholder-backed policyholder liabilities by £2.7 billion, and in-force premium flows by £146 million. 3 Represents premiums received and receivable from business in-force, net of deductions. 51 2014 HALF YEAR RESULTS
IFRS – Asia IFRS Free surplus Other Overview operating generation items Eastspring profit up 24% profit Eastspring, earnings drivers, £m (CER 2 ) Fee income 3 , £m Cost / income ratio 3 111 IFRS operating profit 1 , by business unit 98 63% 59% 13% £m, CER HY14 HY13 Change HY13 HY14 HY13 HY14 Asia 525 440 19% Eastspring, revenue drivers, £bn (CER 2 ) Growth Mix Life 483 406 19% 66.8 Eastspring 42 34 24% 55.4 62.4 12% 25.4 +20% 55.9 Retail/ 21.2 Institutional 4 US 681 569 20% 41.4 +21% 356 8% UK 386 Internal 34.2 M&G 249 225 11% Jun 2013 Jun 2014 HY14 HY13 Closing AUM Average AUM Av. fee revenue 35.2 35.6 margin 5 (bp) 1 IFRS result excludes Japan Life classified as held for sale. 2 HY13 restated on constant exchange rate basis, reducing Eastspring IFRS operating profit by £4 million, half year 2013 average funds under management by £6.8 billion and 30 June 2013 funds under management by £6.4 billion. 3 Fee income is before performance-related fees. 4 Including money market funds. 5 Margin represents operating income before performance-related fees as a proportion of average AUM. Half year figures have been annualised by multiplying by two. 52 2014 HALF YEAR RESULTS
IFRS – US IFRS Free surplus Other Overview operating generation items Jackson Life growth of 28% profit Jackson, sources of income 2 , £m (CER 3 ) HY14 vs 23% 1,361 HY13 IFRS operating profit 1 , by business unit 1,107 27% +5% Spread 31% 24% +36% Technical 22% £m, CER HY14 HY13 Change +28% 48% 46% Fee Asia 525 440 19% HY14 HY13 US 681 569 20% Jackson separate account assets, US$bn Life 686 538 28% +34% Other (5) 31 (116)% 17.3 122.2 13.8 91.1 356 8% UK 386 M&G 249 225 11% 30 Jun Inflows Market 30 Jun movements 2014 2013 1 IFRS results exclude Japan Life classified as held for sale. 2 Sources of income represents fee income, insurance margin, spread income and the expected return on shareholder assets. 3 HY13 restated on constant exchange rate basis, reducing US life sources of income by £90 million. 53 2014 HALF YEAR RESULTS
IFRS – UK IFRS Free surplus Other Overview operating generation items UK Life growth of 10% in challenging market profit IFRS operating profit 1 , by business unit UK Life IFRS operating profit , £m £m, CER HY14 HY13 Change HY14 HY13 Total annuities 232 192 Asia 525 440 19% New business US 681 569 20% - bulk annuities 60 - - individual annuities 25 54 UK 386 356 8% In-force 147 138 Life 374 341 10% Other Life 7 17 15 (20)% Other 12 Shareholder-backed 239 209 With-profits result 135 132 M&G 249 225 11% 374 341 172 1 IFRS results exclude Japan Life classified as held for sale. 54 2014 HALF YEAR RESULTS
IFRS – M&G IFRS Free surplus Other Overview operating generation items M&G IFRS profit up 11% profit M&G, earnings drivers Underlying fee income 2 , £m Cost / income ratio 2 IFRS operating profit 1 , by business unit 463 421 54% 54% 10% £m, CER HY14 HY13 Change HY13 HY14 HY13 HY14 Asia 525 440 19% M&G, revenue drivers, £bn Growth Mix US 681 569 20% 253.7 UK 386 356 8% 234.3 242.9 72.0 +15% 5% 230.9 62.6 Retail M&G 249 225 11% 60.8 +10% 55.5 Institutional 204 11% M&G 227 120.9 +4% 116.2 Internal PruCap 22 21 5% Jun 2013 Jun 2014 Closing AUM HY14 HY13 Average AUM Av. fee revenue 36.5 38.1 margin 3 (bp) 1 IFRS results exclude Japan Life classified as held for sale. 2 Represents fee income before performance-related fees and excludes income from associates. 3 Margin represents operating income before performance-related fees as a proportion of average AUM. Half year figures have been annualised by multiplying by two. 55 2014 HALF YEAR RESULTS
Net free surplus generation IFRS Free surplus Other Overview operating generation items Increasing free surplus generation profit Free surplus generation 1 , £m, (CER 2 ) Life in-force result, £m (CER 2 ) HY14 HY13 Change HY14 Change HY13 Expected return from in-force 1,116 983 14% Asia 433 371 17% Experience result 187 192 (3)% US 634 547 16% Investment return on free surplus 58 36 61% UK 294 293 0% 1,211 12% Life in-force result 1,361 New business strain, £m (CER 2 ) Asset management 240 234 3% HY14 Change HY13 Gross free surplus generation 1,601 1,445 11% Asia 167 147 14% Less: new business strain 382 362 6% US 173 195 (11)% UK 42 20 110% Net free surplus generation 1,219 1,083 13% 1 Free surplus generation exclude Japan Life classified as held for sale. 2 HY13 restated on constant exchange rate basis, reducing net free surplus generation by £69 million, Asia life in-force result by £54 million, US life in-force result by £44 million, Asset management by £5 million, Asia new business strain by £18 million and US new business strain by £16 million. 56 2014 HALF YEAR RESULTS
Net free surplus generation IFRS Free surplus Other Overview operating generation items Underpinning cash to Group profit Movement in free surplus , £m Movement in central cash , £m x% Free surplus cover HY14 HY13 Change 201% 1 5,160 202% (27) Asia 216 190 +14% (974) 1,219 US 352 +20% 294 4,186 3,968 UK 246 226 +9% M&G 3 160 +19% 134 (610) 974 2,230 (537) (155) 1,902 (315) 1 Jan Net free Market / Cash 30 Jun 1 Jan Corporate Cash Dividends Central 30 Jun 2014 2 other remitted to 2014 surplus 2014 Actions/ costs remitted paid 2014 movements Group generated Other from BUs 1 As at 31 December 2013. 2 Includes £(35)m effect of domestication of Hong Kong branch. 3 Includes PruCap. 57 2014 HALF YEAR RESULTS
EEV operating profit (post-tax) IFRS Other Free surplus Overview operating generation items Operating return on EEV of 16% 1 profit EEV operating profit 2 , by business unit EEV Life operating profit 2,3 , £m (CER 4 ) £m, CER 4 HY14 HY13 Change 1,997 HY13 HY14 Total Life 1,997 1,673 19% 1,673 Unwind 647 749 Experience 3 172 224 Asia 832 715 16% 982 In-force Assumption 37 9 856 +15% profit 3 US 777 654 19% changes 304 28% UK 388 New 1,015 +24% 817 business 223 4% 231 AM profit Other (285) (245) (16)% HY13 HY14 CER 1,943 1,651 18% 1 Annualised by multiplying by two. 2 EEV results excludes Japan Life classified as held for sale. 3 Net of Asia development expenses (HY13: £(2)m, HY14: £(1)m). 4 HY13 restated on constant exchange rate basis, reducing Asia Life EEV operating profit by £112 million, US Life EEV operating profit by £53 million, Asset management by £5 million, in-force profit by £69 million and new business profit by £96 million. 58 2014 HALF YEAR RESULTS
EEV operating profit IFRS Other Free surplus Overview operating generation items Value creation through increasing NBP – up 24% profit New business profit , £m (CER 1 ) Movement in NBP, HY14 vs HY13 Volume +11% Bulks +8% 1,015 69 Bulks Mix / pricing / other +3% 76 817 +45% Economic effect (excl FX) +2% 100 UK CER +24% 376 +31% 288 US IRR and payback periods Payback 494 +15% IRR Asia 429 period Asia >20% 3 years US HY13 HY14 >20% 2 years CER UK >20% 5 years 1 HY13 restated on constant exchange rate basis, reducing Asia new business profit by £73 million and US new business profit by £23 million. 59 2014 HALF YEAR RESULTS
Equity shareholders’ funds IFRS Other Free surplus Overview operating generation items Summary of movement profit Movement in shareholders’ funds IFRS Equity EEV Equity HY14 % vs HY14 HY14 % vs HY14 £bn HY13 per share £bn HY13 per share 1.1 7% 45 1.9 7% 76 After-tax operating profit 0.0 0 0.0 0 Investment variance 1.1 214% 45 1.9 1% 76 Profit for the period Unrealised gain on AFS 1 0.5 21 0.1 3 Foreign exchange and other 2 0.0 (5) (0.4) (17) (0.6) (24) (0.6) (24) Dividend Retained earnings 1.0 37 1.0 38 9.6 377 24.9 971 Opening shareholders’ equity Closing shareholders’ equity 10.6 414 25.9 1,009 Movement in period +9% +9% +4% +4% 1 For IFRS relates to JNL fixed income portfolio accounted as available for sale. For EEV, represents mark to market movements on JNL assets backing surplus and required capital. 2 Includes the effect of domestication of Hong Kong branch on 1 January 2014 60 2014 HALF YEAR RESULTS
Balance sheet IFRS Other Free surplus Overview operating generation items Well capitalised and defensively positioned profit Maintained capital strength • IGD surplus £4.1bn equivalent to a cover of 2.3 times (HY2013: £3.9bn) • With-profits estate of £7.5bn 1 (1 January 2014: £6.8bn) • Group leverage of 20% 2 (HY13: 22%) Strong liquidity position • £1.9bn of central cash resources • £2.4bn of untapped liquidity facilities Credit position improved • UK: £1.9bn default provision • Unrealised gains on US debt securities of £1.8bn (31 December 2013: £0.8bn) • US impairments in HY2014 of £(8)m (HY2013: £1m) Continued balance sheet conservatism • Variable annuity hedging remains robust • Conservative asset mix with 96% of credit portfolio rated investment grade 3 1 Prudential re-domesticated the Hong Kong branch business of the PAC With-Profits fund, effective of 1 January 2014. 2 Calculated as debt net of cash and short-term investments, as a proportion of IFRS shareholders’ funds plus net debt. 3 Shareholder-backed business. 61 2014 HALF YEAR RESULTS
2014 first half summary IFRS Other Free surplus Overview operating generation items profit Good progress across key financial metrics • Double digit growth in NBP, IFRS operating profit, free surplus generation and cash • Broad based performance across geographies Improving earnings quality • Increased contribution from insurance income and fee based business • Continued investment in new business with attractive returns and fast payback Strong balance sheet position • Continued balance sheet conservatism • Robust solvency position 62 2014 HALF YEAR RESULTS
Prudential plc 2014 half year results Agenda Tidjane Thiam Business Review - UK Life - Jackie Hunt Financial Review Nic Nicandrou Outlook Tidjane Thiam 63 2014 HALF YEAR RESULTS
Summary • Delivering “Growth and Cash” • Right strategy, right markets, right products • Disciplined execution • Well positioned to capture long term profitable growth from Asia 64 2014 HALF YEAR RESULTS
Q&A 65 2014 HALF YEAR RESULTS
2014 Investor Day 2014 Investor Day 1 st to 4 th December 2014 1 st to 4 th December 2014 Singapore / Jakarta Singapore / Jakarta RSVP: Investor.Relations@prudential.co.uk
Appendix 67 2014 HALF YEAR RESULTS
Dividend 2014 Interim dividend increased by 15% Dividend, pence per share 33.57 Total dividend • Interim dividend increased by 15 per cent to 11.19 pence per share 23.84 Final dividend • Ex-dividend date: 20 August 2014 • Record date: 22 August 2014 • Payment of dividend: 25 September 2014 +15% 11.19 9.73 Interim dividend 2013 2014 68 2014 HALF YEAR RESULTS
Strategy A clear strategy underpinned by clear operating principles Strategy Operating Principles Balanced Metrics & Disclosures US Build on Strength ASIA Accelerate Focus on Customers and Distribution UK ASSET Proactive Disciplined Focus Risk Capital MANAGEMENT Management Allocation Optimise 69 2014 HALF YEAR RESULTS
Asia Long term opportunity GDP per capita in 2010, against the US GDP per capita,1990 US$ 1 35,000 US GDP Hong Kong per capita 30,000 Singapore • Pan Asian leader: #1 by NBP 2 25,000 • Top 3 in 7 /11 Asian Countries 3 Taiwan Korea • Market leading platform 20,000 – Over 500,000 agents – Access to over 15,700 bank 15,000 branches Malaysia • 12.7 million customers 4 10,000 Thailand China Indonesia Vietnam India 5,000 Philippines 0 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 1 Geary-Khamis dollar, based on purchasing power parities with 1990 as benchmark year - one 1990 dollar has the same purchasing power as the US dollar in 1990. Prudential estimates. 2 NBP = New Business Profit; Prudential estimates based on information disclosed in company reports. Amongst pan Asian international (private) insurers. 3. Source: based on formal (Competitors’ results release, local regulators and insurance associations) and informal (industry exchange) market share data. Excludes Cambodia and Myanmar. Market share data as of latest, India and China ranking and market share amongst foreign / JV / private only. Singapore includes onshore only., excluding Eldershield and DPS Thailand market share is post the acquisition of Thanachart Life. Based on APE where available or local industry standard. 4. Customer numbers as of 30/06/2014 70 2014 HALF YEAR RESULTS
Asia Favourable dynamics Prudential customers as a GDP 2015 GDP % of total population 2 ($bn) 2 growth (%) 2 Indonesia (1995) 1 0.9% 917 5.4 Philippines (1996) 0.2% 290 6.5 Sweet Spot markets 0.7% 397 2.5 Thailand (1995) Vietnam (1999) 1.4% 180 5.6 Hong Kong (1964) 11.5% 284 3.7 6.1% 329 5.2 Malaysia (1924) Singapore (1931) 14.5% 307 3.6 India (2000) 0.3% 1,972 5.4 JV’s 0.05% 9,874 7.5 China (2000) Markets 1.0% 505 3.1 Mature Taiwan (1999) Korea (2002) 0.6% 1,267 3.7 Nascent Markets - 17 7.2 Cambodia (2013) - 61 7.8 Myanmar (2013) 1 Number in bracket denotes start of operation. 2 Source IMF. GDP in $bn for 2014 (estimated). Penetration rate based on customers at December 2013 71 2014 HALF YEAR RESULTS
Asia Middle class contribution to GDP Middle class in Asia (sweetspot) 1 , $bn 1,000 Lehman collapse US Black Monday crash Mexico: Tequila crisis Asia currency crisis Russian Rouble crisis Dotcom bubble SARS scare 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1 Sweetspot countries include Indonesia, Malaysia, Singapore, Hong Kong, Thailand, Philippines and Vietnam. Household consumption as a component of GDP. Source: World Bank, IMF and Economic Research Division of Federal Reserve Bank of St. Louis. Prudential estimates. Middle Class household consumption arrived at adjusting total household consumption data for income share held by the top 10% and bottom 10% of households. 72 2014 HALF YEAR RESULTS
Asia Growing demand for healthcare Household consumption by category 1 , % 100% = $1.3tn 6 Personal items 14 Recreation 3 Education 12 Transportation 3 Communications 5 Clothing 7 Healthcare 5 Household products 100% = $0.5tn 15 Housing 5 14 Discretionary 2 10 2 9 6 Semi-Necessities 6 13 31 Food Necessities 34 1990 2010 1 Euromonitor, McKinsey, Prudential estimates. 73 2014 HALF YEAR RESULTS
Asia Significant protection gap in sweetspot markets Share of medical expenses paid out-of-pocket 1 , % 60% 59% 56% 56% 50% 42% 35% 35% 33% 31% 16% 11% 9% USA UK Japan 1 World Health Organisation – Global Health Expenditure Database (2011). For Hong Kong – Food and Health Bureau, Government of Hong Kong (2010). For Taiwan data is for the year 2006. 74 2014 HALF YEAR RESULTS
Asia Life Products meet customer needs and create shareholder value Health and Protection – Out of pocket Annual premium for a customer aged 50 medical expenses 1 (indexed) 143 123 19 117 114 100 73 Saving 100 81 27 Spend Without Basic Prudential Prudential Co. A Co. B Co. C Co. D insurance Government Protection insurance Product 1 Expenses for a male aged 50 for heart diseases and heart surgery treatment. 75 2014 HALF YEAR RESULTS
Asia distribution Wealth and financial assets ownership Breakdown of personal financial assets 12% Life 24% 9% Non-Life 39% Asset Mgt 9% 18% 24% 20% Bank 70% Deposits 21% 38% 16% Per capita Up to $2,000 to $15,000+ income level $2,000 $15,000 Source: Oliver Wyman analysis; Prudential analysis. 76 2014 HALF YEAR RESULTS
Asia Affordable products underpin consumer demand Prudential product premium 1 Developed markets health insurance spend 2 Healthcare spend as % of average annual income 2 100% = average annual income 12% 11% 11% Linked 10% 46 premium Premiums paid = 9% of average annual 5.0% income H&P 54 premium Premiums as a proportion of % of premium used Prudential US France Germany UK average annual income to purchase benefit Example 1 Average Prudential customer spend on insurance products. 2 Source: OECD, UN population stats, Prudential estimates. Premium spend includes healthcare expenditure by private and public sources except for the US. Healthcare spend data adjusted for working age population and unemployment rates. 77 2014 HALF YEAR RESULTS
Delivering cash Free surplus and cash remittances Underlying free surplus generated 1 , £m Business unit net remittances, £m +15% 974 +6% M&G 1,219 160 incl 844 1,152 PruCap 1,091 1,031 726 690 921 246 UK 460 609 375 352 US 216 Asia HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 1 Comparatives adjusted for new and amended accounting standard and excludes Japan Life. 78 2014 HALF YEAR RESULTS
Cash and capital generation Increasing free surplus stock Evolution of free surplus , £m x% Free surplus cover 1,601 M&G 200 5,160 UK 303 201% 4 202% (382) (27) US 629 4,186 Asia 469 3,968 xxx (974) M&G 3 506 M&G 3 449 UK 1,130 UK 1,170 Underlying free surplus £1,219m US 1,163 US 1,074 Asia 1,387 Asia 1,275 Free Underlying Investment Market related Free surplus Free Net cash surplus in-force in new movements, before surplus remitted to 1 Jan surplus business timing Group 30 June Group 2014 1,2 generated differences and actions 2014 other items 1. Asia and US include asset management and UK includes GI commission. 2. Includes £(35) m effect of domestication of Hong Kong branch 3. M&G includes PruCap 4. As at 31 December 2013. 79 2014 HALF YEAR RESULTS
Net cash remittances UK and other Business unit net remittances, £m CAGR (UK Life + Other) +20% 728 618 496 425 268 263 265 246 237 230 226 197 107 97 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 UK Life Other 80 2014 HALF YEAR RESULTS
Cash and capital Central cash resources Development of central cash resources, £m FY 2012 FY 2013 HY 2014 974 (155) 1,341 1,200 605 2,230 2,230 (610) (315) 1,902 (289) (537) Operating holding co 1,380 1,380 (781) cashflow +£209m 1,200 (655) (76) Operating holding co cashflow +£245m Operating holding co cashflow +£256m Opening balance of central cash resources Dividend Net remittances to Group Other items Corporate cash costs, interest and tax received Closing balance of central cash resources 81 2014 HALF YEAR RESULTS
New business growth Group life APE Life APE 1 , £m +17%,CER H1 11: £1,824m H2 11: £1,857m H1 12: £2,030m H2 12: £2,165m H1 13: £2,162m H2 13: £2,261m H1 14: £2,300m 1,176 1,158 1,124 1,124 1,117 1,103 1,066 1,048 1,038 977 964 936 888 880 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 1 Excluding Japan. 82 2014 HALF YEAR RESULTS
New business growth Group life new business profit Life new business profit 1 , £m +24%,CER H1 11: £756m H2 11: £780m H1 12: £818m H2 12: £973m H1 13: £913m H2 13: £1,169m H1 14: £1,015m 660 547 529 509 503 486 444 435 426 410 407 383 349 336 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 1 The 2014 EEV results for the Group are presented on a post-tax basis and, accordingly, the prior quarterly results are shown on a comparable basis. Excludes Japan. 83 2014 HALF YEAR RESULTS
New business growth Group life returns on new business investment Post-tax new business profit per £ of new business strain 1 2.7 2.5 2.3 2.2 1.9 1.4 1.1 HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 1 Free surplus invested in new business; excludes Japan. 84 2014 HALF YEAR RESULTS
Cash Asia New business sales Asia APE by quarter 1 , £m 2008 2009 2010 2011 2012 2013 HY 2014 1,174 1,209 1,501 1,660 1,897 2,125 996 602 569 513 515 513 507 495 489 456 443 435 429 403 404 376 367 359 354 353 325 296 282 279 276 274 248 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 1 Excludes Japan and Taiwan agency 85 2014 HALF YEAR RESULTS
Asia Life APE by market Asia APE by market, £m (Constant Exchange Rate) +30% 258 +0% 198 +11% 184 184 172 155 +6% 91 86 -20% +33% +29% -6% +100% 60 57 54 48 47 +10% -12% 44 43 42 42 25 23 22 21 21 Hong Kong Indonesia Singapore 1 Malaysia 2 China 50% 3 Taiwan Korea India 26% 4 Thailand Vietnam Philippines 5 4 th 1 st 1 st 1 st 1 st 14 th 18 th 1 st 8 th 1 st 2 nd Ranking HY 2013 HY 2014 X% HY 2014 v HY 2013 1 Singapore includes onshore only, excluding Eldershield and DPS 2 Includes Takaful sales @100%. 3 Ranking amongst foreign JVs. 4 Ranking amongst private players. 5 #2 ranking based on most recent industry sharing data. Source: Based on formal (Competitors’ results release, local regulators and insurance associations) and informal (industry exchange) market share data. Ranking based on new business (APE or weighted FYP depending on the availability of data). 86 2014 HALF YEAR RESULTS
Asia Life APE sales by product Asia APE by product, % 2 2 3 3 3 3 3 3 3 3 3 4 4 4 4 5 5 5 5 5 5 6 7 7 7 7 8 8 9 9 18 19 21 17 14 19 20 23 26 25 26 27 29 30 30 28 33 33 33 33 35 34 31 34 34 33 35 18 38 35 40 17 18 19 20 20 22 30 24 30 27 27 24 27 25 31 29 32 24 34 30 33 34 30 29 32 31 30 29 28 62 60 57 59 65 59 55 44 46 38 43 44 44 39 42 37 34 31 36 28 29 28 27 31 30 30 24 27 23 27 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 Linked Health Par Other 87 2014 HALF YEAR RESULTS
Asia Life Flows and persistency Asia Life gross flows 1,2 , £bn Asia Life gross flows (ex-India) 1,2 , £bn 2.5 2.3 2.2 2.2 2.0 1.9 2.0 1.8 1.7 1.6 1.5 1.5 1.2 6.2% 5.6% 5.2% 5.1% 5.2% 4.7% 5.5% 4.8% 4.8% 4.4% 1.0 0.5 HY 10 HY 11 HY 12 HY 13 HY 14 HY 10 HY 11 HY 12 HY 13 HY 14 Surrenders/withdrawals as % of opening liabilities 1 Defined as movements in shareholder-backed policyholder liabilities arising from premiums (after deducting insurance & other margins). 2 Excludes Japan and Taiwan agency 88 2014 HALF YEAR RESULTS
US retail sales and deposits HY 2014 Retail sales and deposits , $m HY 2013 = $13,152m HY 2014 = $14,843m $457 $439 $1,365 $1,456 $304 $2 $8,711 $7,262 $957 $2,492 $1,960 $1,532 $1,058 Fixed Annuities Variable Annuities – with living benefits Variable Annuities – w/o living benefits, non EA Elite Access Index Annuities Life insurance Curian 89 2014 HALF YEAR RESULTS
US Life VA volumes VA volumes by quarter , sales US$m 27% 28% 53% 46% 45% 42% 50% 46% 6,383 6,352 5,715 • ‘Features War’ 5,656 1,136 1,356 5,473 5,258 412 5,189 4,974 218 1,124 1,094 4,565 4,553 991 4,427 4,383 4,176 4,212 836 715 3,756 3,686 3,658 3,335 3,134 2,909 2,368 2,370 2,324 2,250 2,052 1,780 1,769 1,505 1,412 1,508 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 1 12 th 11 th 12 th 12 th 12 th 12 th 12 th 12 th 8 th 5 th 4 th 4 th 4 th 4 th 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 3 rd 2 nd 2 nd 1 st 1 st 1 st 1 st 1 st 1 st FY New business margin (post tax) 2 Ranking Elite Access 1. Estimated. 2. Previously disclosed pre-tax margins have been adjusted at a notional tax rate of 35%, and are now presented as post tax 90 2014 HALF YEAR RESULTS
US Life Variable annuity distribution Variable annuity sales by distribution channel, US$bn HY 2014 includes $2.5bn of Elite Access sales (HY 13, $2.0bn) 12.7 +24% 10.3 8.3 6.5 2.3 1.9 2.1 1.9 HY 2013 HY 2014 IBD RBD/Wirehouse Bank IBD: Independent Broker/Dealer, RBD: Regional Broker Dealer. 91 2014 HALF YEAR RESULTS
US Life New business margin New business margin (post tax), % APE 46% 44% 43% 24% 21% 12% Variable Annuities US Other HY 2012 HY 2013 HY 2014 92 2014 HALF YEAR RESULTS
US IFRS profit DAC impact on results Impact on results of DAC amortisation, £m 2013 HY 2013 HY 2014 Gross profits 1 1,716 818 948 New business strain 2 (198) (93) (103) DAC Amortisation - Core (485) (219) (249) - (Acceleration) / deceleration 82 20 10 Operating result 1,115 526 606 Core as % of Gross profits 28% 27% 26% 1 Gross profits equals IFRS operating profit pre acquisition costs and pre DAC, excluding REALIC. 2 Represents acquisition costs no longer deferrable following the adoption of altered US GAAP principles for deferred acquisition costs. 93 2014 HALF YEAR RESULTS
US Life Policyholder behaviour Optional benefits elected , % of initial benefits elected (New business) 86% 82% 80% 79% 66% 65% 55% 42% 21% 21% 15% 11% 7% 7% 6% 6% 5% 5% 5% 2007 2008 2009 2010 2011 2012 2013 HY 2014 No benefit GMWB (for life) Elite Access 94 2014 HALF YEAR RESULTS
US Life Asset growth Growth in statutory admitted assets, US$bn HY 14 v 2013 increase: $13.8bn 184.7 170.9 Net Inflows: $7.8bn Market Movements: $6.0bn 142.8 122.2 107.6 108.8 97.5 80.1 81.0 76.7 70.9 69.3 58.8 48.9 62.8 55.6 33.3 30.0 20.9 50.9 22.3 46.6 14.7 43.0 10.4 40.2 7.1 4.4 5.1 5.6 62.7 62.1 62.5 50.0 48.1 48.6 48.8 47.1 46.7 47.7 45.2 43.8 42.2 37.9 34.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 HY 2014 General account Separate account 95 2014 HALF YEAR RESULTS
Resilient balance sheet GMWB policyholder behaviour sensitivities GMWB policyholder behaviour sensitivities, HY 2014 US$bn • Policyholder behaviour experience is continuously monitored and a comprehensive study is conducted on an annual basis 7,000 • For IFRS and Statutory accounting purposes, assumptions are set at the conservative end of the plausible range (i.e. best estimate with 6,000 an explicit margin for conservatism). For example, 5,000 – Surrender – GMWB ultimate surrender assumptions at significantly ITM levels are assumed to be 33% of the base surrender assumptions 4,000 – Utilisation – For-Life GMWB utilisation assumptions at attained ages 65+ are 60-80% (with special provisions for benefits with 3,000 incentives to delay withdrawals) 2,000 • To measure the sensitivity to these assumptions, IFRS Equity and Statutory Capital were computed under severe shocks to these already conservative assumptions. The shocks were as follows: 1,000 – Surrender – surrender rates for ITM policies were reduced to half 0 the assumed levels. For example, ultimate surrender rates on significantly ITM policies were reduced from 33% to 17% of the Total Adjusted IFRS SH equity base surrender level, resulting in ultimate surrender rates of less Capital than 2% for most plan types – Utilisation – utilisation rates beyond the bonus period, if Total Lapse sensitivity impact applicable, were increased by an absolute 10%. For example, Utilisation sensitivity impact utilisation rates of 60-80% on For-Life contracts at attained ages 60+ were increased to 70%-90% 96 2014 HALF YEAR RESULTS
Hedging result IFRS impact ‘below-the-line’ 2014 half year VA hedge results, net of related DAC , £m 0 (100) (200) 110 (300) (288) 190 (359) (400) (500) (600) (229) (700) Equity hedge VA reserve Interest rate Non-operating IFRS net instruments changes hedges fee income, hedge result net of claims 97 2014 HALF YEAR RESULTS
Hedging result Moving IFRS hedge result to ‘economic’ result 2014 half year VA ‘economic’ hedge results, net of related DAC, £m 50 291 0 20 (50) (61) (100) (150) (112) (150) (200) (250) (300) (288) (350) IFRS net Adjustment Fair value Adjustments to Other ‘Economic’ hedge results to full fees adjustment other assets hedge result to reserves carried at cost 98 2014 HALF YEAR RESULTS
VA hedging Moving reserves to ‘fair value’ Guarantee Benefit Liability Supplemental Disclosure 1 , net of DAC , £m 200 157 0 (105) (200) (400) (600) (800) 19 (1,000) (1,010) (1,081) (1,029) (1,200) As recorded 2 Change in Adjustment Revised liability, Volatility Hypothetical rates 3 to full fees 4 excluding volatility adjustment 5 fair value with adjustment full fees 1 A positive number indicates liability while a negative number indicates an asset. 2 GMWB and GMDB IFRS basis 3 Application of market based (30.06.14) swap curve earned rates (2.6% representative 10 year rate) and AA corporate bond discount rates (3.7% representative 10 year rate) in place of long-term rate of 7.4% for IFRS (8.4% discount rate used for pre-2013 issues) 4 Value of fees over and above those in reserve calculations 5 Application of market based (30.06.14) volatility curve (18.4% representative 5 year rate) instead of long-term 15% level for IFRS 99 2014 HALF YEAR RESULTS
Jackson Capital, hedging and policyholder behaviour Total adjusted Capital • Hedging programme continues to effectively US$bn mitigate risks 4.8 31 Dec 2013 • Total adjusted capital excludes gains on interest rate swaps: $220m at June 2014 (Dec 2013: loss of $1.2m) 0.5 Operating profit • Earned guarantee fees of 116 bps per annum (c$0.7bn in HY 2014). Expected guarantee fees of $1.3bn for (0.6) Dividend 2014 continue to be sufficient to cover cost of hedging Reserves net of hedging • Equity allocations remain below our 82% pricing - and other market effects assumption • <1% of book ‘in the money’ from issued levels 30 June 2014 4.7 at HY2014 100 2014 HALF YEAR RESULTS
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